I am Director of Entitlement and Budget Policy for the Heartland Institute, Senior Advisor for Entitlement Reform and Budget Policy at the National Tax Limitation Foundation, General Counsel for the American Civil Rights Union, and Senior Fellow at the National Center for Policy Analysis. I served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush. I am a graduate of Harvard College and Harvard Law School, and the author most recently of America's Ticking Bankruptcy Bomb (New York: Harper Collins, 2011).
I write about new, cutting edge ideas regarding public policy, particularly concerning economics.

Reaganomics Vs. Obamanomics: Facts And Figures

In February 2009 I wrote an article for The Wall Street Journal entitled “Reaganomics v Obamanomics,” which argued that the emerging outlines of President Obama’s economic policies were following in close detail exactly the opposite of President Reagan’s economic policies. As a result, I predicted that Obamanomics would have the opposite results of Reaganomics. That prediction seems to be on track.

When President Reagan entered office in 1981, he faced actually much worse economic problems than President Obama faced in 2009. Three worsening recessions starting in 1969 were about to culminate in the worst of all in 1981-1982, with unemployment soaring into double digits at a peak of 10.8%. At the same time America suffered roaring double-digit inflation, with the CPI registering at 11.3% in 1979 and 13.5% in 1980 (25% in two years). The Washington establishment at the time argued that this inflation was now endemic to the American economy, and could not be stopped, at least not without a calamitous economic collapse.

All of the above was accompanied by double -igit interest rates, with the prime rate peaking at 21.5% in 1980. The poverty rate started increasing in 1978, eventually climbing by an astounding 33%, from 11.4% to 15.2%. A fall in real median family income that began in 1978 snowballed to a decline of almost 10% by 1982. In addition, from 1968 to 1982, the Dow Jones industrial average lost 70% of its real value, reflecting an overall collapse of stocks.

President Reagan campaigned on an explicitly articulated, four-point economic program to reverse this slow motion collapse of the American economy:

1. Cut tax ratesto restore incentives for economic growth, which was implemented first with a reduction in the top income tax rate of 70% down to 50%, and then a 25% across-the-board reduction in income tax rates for everyone. The 1986 tax reform then reduced tax rates further, leaving just two rates, 28% and 15%.

2. Spending reductions, including a $31 billion cut in spending in 1981, close to 5% of the federal budget then, or the equivalent of about $175 billion in spending cuts for the year today. In constant dollars, nondefense discretionary spending declined by 14.4% from 1981 to 1982, and by 16.8% from 1981 to 1983. Moreover, in constant dollars, this nondefense discretionary spending never returned to its 1981 level for the rest of Reagan’s two terms! Even with the Reagan defense buildup, which won the Cold War without firing a shot, total federal spending declined from a high of 23.5% of GDP in 1983 to 21.3% in 1988 and 21.2% in 1989. That’s a real reduction in the size of government relative to the economy of 10%.

4. Deregulation, which saved consumers an estimated $100 billion per year in lower prices. Reagan’s first executive order, in fact, eliminated price controls on oil and natural gas. Production soared, and aided by a strong dollar the price of oil declined by more than 50%.

These economic policies amounted to the most successful economic experiment in world history. The Reagan recovery started in official records in November 1982, and lasted 92 months without a recession until July 1990, when the tax increases of the 1990 budget deal killed it. This set a new record for the longest peacetime expansion ever, the previous high in peacetime being 58 months.

During this seven-year recovery, the economy grew by almost one-third, the equivalent of adding the entire economy of West Germany, the third-largest in the world at the time, to the U.S. economy. In 1984 alone real economic growth boomed by 6.8%, the highest in 50 years. Nearly 20 million new jobs were created during the recovery, increasing U.S. civilian employment by almost 20%. Unemployment fell to 5.3% by 1989.

The shocking rise in inflation during the Nixon and Carter years was reversed. Astoundingly, inflation from 1980 was reduced by more than half by 1982, to 6.2%. It was cut in half again for 1983, to 3.2%, never to be heard from again until recently. The contractionary, tight-money policies needed to kill this inflation inexorably created the steep recession of 1981 to 1982, which is why Reagan did not suffer politically catastrophic blame for that recession.

Real per-capita disposable income increased by 18% from 1982 to 1989, meaning the American standard of living increased by almost 20% in just seven years. The poverty rate declined every year from 1984 to 1989, dropping by one-sixth from its peak. The stock market more than tripled in value from 1980 to 1990, a larger increase than in any previous decade.

In The End of Prosperity, supply side guru Art Laffer and Wall Street Journal chief financial writer Steve Moore point out that this Reagan recovery grew into a 25-year boom, with just slight interruptions by shallow, short recessions in 1990 and 2001. They wrote:

We call this period, 1982-2007, the twenty-five year boom–the greatest period of wealth creation in the history of the planet. In 1980, the net worth–assets minus liabilities–of all U.S. households and business … was $25 trillion in today’s dollars. By 2007, … net worth was just shy of $57 trillion. Adjusting for inflation, more wealth was created in America in the twenty-five year boom than in the previous two hundred years.

What is so striking about Obamanomics is how it so doggedly pursues the opposite of every one of these planks of Reaganomics. Instead of reducing tax rates, President Obama is committed to raising the top tax rates of virtually every major federal tax. As already enacted into current law, in 2013 the top two income tax rates will rise by nearly 20%, counting as well Obama’s proposed deduction phase-outs.

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Reagonomics extended into the Clinton and Bush terms is what caused he current debt and recession imbroglio. Under Reagonomics we reduced taxes and government increased borrowing to make up the difference. This article is an old and fallacious argument all together. Deregulation also contributed to the economic collapse as well as to environmental and safety disasters. It is unfortunate that this writer ideology has made him oblivious to reality.

Wow! These have to be the most cherry picked statistics I have ever seen in my life, and they are also the most misleading statistics I could ever imagine. Let’s talk about a few things. Remember those disastrous tax increases passed in 1990 you cited? Well guess what, those tax increases did not take effect until 1991. The year that the early 1990s recession ended. Let’s also look at the fact that Reagan had been President for six months when the recession started in 1981. Obama had been President for six months and the recession ended. To state that the recession Reagan had was worse is a complete rewrite of history and also a rewrite of how we measure recessions. Recessions are measured in terms of GDP loss. The recession under Reagan had a loss of 2.7%, and that all occurred 100% while he was President. Our GDP loss for the recession Obama inherited was 4.7% and almost all of that was under George W. Bush. We have also had the largest tax cuts in history under Obama, a fact you seem to gloss right over, and it was all in an effort to help get Republicans to support the economic stimulus. Realistically, he should have just had his stimulus 100% focus on spending vs. tax cuts that do not work. There are so many flaws in your economic theories that you propose here, it would take me dozens of pages to show you all the statistics that have time and again shown Reaganomics did not work! I just hope readers are smart enough to do some research for themselves.

What happened to all of these cities was that manufacturers discovered that international shipping costs had dropped dramatically because of the development of giant container ships and containerization of transport. In the past, transportation costs were quite high so it was most profitable to manufacture products close to the target market. Starting in the 1970′s, transportation costs dropped dramatically. Further, overseas manufacturing opportunities in areas with really low wages opened up for strictly export business. These two trends converged and manufacturers abandoned the US as location for manufacturing for overseas operations. It was just too profitable to manufacture overseas as compared to the US. Notably, income tax rates have not do with it. When you look at the manufacturing profile of an overseas center versus and US center, the profits are so much higher overseas that even if a company paid no taxes at all in the US, it still be more profitable overseas.

Jude what caused the debt crisis is not what the government took in it is what government spends. Because of the Reagan tax cut the government actually almost tripled revenue the problem was government spending grew at a larger rate. As is the case today we do not have a revenue problem we have a spending problem.

Currently today the imfamous top 2% earn roughly 980 Billion dollars the remaining 98% roughly 2.2 trillion. Our budget is around 4 Trillion at current spending. I love how the people on left think all can be solved by just increasing the taxes on the top 2%. Why not just take all their money, you see we can not tax our way out of our problems and unfortunaltley I believe we can not grow ourselves out the problem. The solution is to cut and slash spending and I am not talking about billions if we are really going to save this economy and this country the cutting needs to start in the trillions.

We must also insitute a balance budget admendment. It doesn’t matter if the Dems or Rep control the purse strings they spend too much. Any plan they enact going forward weather Obamas, Ryans or anywhere in between doesn’t get balanced for a generation by that time we will have new plans and new people. No the only way to control Washington is to create and admendment to the constiitution. Blame who you want for the problem this is the only solution. The problems I see we are near the tipping mark with regards to the Zero liability voter we are at 48% of the voting population pays zero income tax or actually receives more money back than they paid. This is a very dangerous situation in which a near majority have zero skin in the game. This also happens to represenet a large portion of the base of one of the major political parties.

That is part to blame the other part is these same cities taxed corpoartions out of the city limits. Take a look at the suburbs around Detroit. They are some of the most affluent in the country you can not tell me that the corporations that are in those areas could not be located in the city limits. In Philadelphia the wage tax to work in the city is over 4% and company and many have move 10 miles out of the city limit and without doing anything but moving give their employee a 4% raise. Heck the city newspapers in Philadelphia are printed in the suburbs.

Also these manufacturing laborers also have been sold a bill a goods by their so-called union who continually squeezed the pump to push and push until companies moved south or out of the country. Couple this with ridiculous regulations that have penalized companies it is no wonder these companies pick up an move. Here is a news flash companies need to make money to stay in business and grow. Our corporate tax rates coupled with our regualtions and unions have driven comapanies away. I really dont why anyone would want to manufacturer anything in this country. At the end of day to many in this country want cheap products made in the is country by workers making 30/hour plus benefits the too do not add up

Hmmm… when talking about Obama’s plans he’s comparing them relative to present day values (“As already enacted into current law, in 2013 the top two income tax rates will rise by nearly 20%…”). The problem is that the current rates are so low that even with massive increases the tax rate would still be FAR BELOW what they were under Reagan.

Wouldn’t a more valid comparison be between the actual tax rates for the top tax bracket during Reagan’s years (50%) and the actual tax rates that would occur when the Bush tax cuts expire (39.6%)? In this case, if you really wanted to be like the deified Reagan, shouldn’t Republicans be arguing for HIGHER taxes?

It’s simple math, people. Anyone claiming Reagan’s policies were better should also be demanding HIGHER taxes than the Obama/Democrats are.

In one sense, Mr. Ferrera is correct. President Obama’s policies are different than President Reagan’s. In practice President Reagan was more of a Keynesian.

Both presidents inherited budgets from their predecessor’s that set post WW II records for spending as a % of GDP in their first year in office. Spending declined in President Obama’s first budget year (FY 2010). By contrast, under Reagan, after record spending in FY 1981, we INCREASED spending and set even higher records in FY 1982 and 1983. We continued this fiscal stimulus until all of the 2.7 miilion private sector jobs lost in the early 1980′s downturn were recovered. The result was a strong recovery, just as Keynes would have predicted.

The lesson in this is to continue fiscal stimulus until all of the 8.8 million private sector jobs lost in the downturn that started in late 2007 are recovered. This is over three times the job losses in the early 1980′s. Yes, we have had 14 straight months of private sector job growth, adding 2 million private sector jobs during this period. But we are still down 6.75 million jobs versus three years ago.

Updating my comment from a year ago. In FY 2011, spending held constant as a % of GDP, but increased in nominal dollars. In FY 2012, spending fell in both nominal dollars and as a % of GDP. Because we have stopped increasing Keynesian fiscal stimulus, the recovery has faltered somewhat, although it continues at a reduced pace.

Through September 2012, we have added 4.7 million private sector jobs in 31 straight months of jobs growth. Nonetheless, we are still short over four million jobs. At current rates of fiscal stimulus and jobs growth, full jobs recovery will take another two years.

On the other hand, current law calls for fiscal austerity at the end of the current year. This so-called “fiscal cliff” is actually an austerity induced cliff risking economic contraction. By trying to cut the deficit before all the lost jobs are recovered, we risk repeating 1938 and another double dip recession. Unfortunately neither presidential candidate is making the case for Reagan-like additional fiscal stimulus over the next two years until ALL the lost jobs are recovered.